Friday, October 28, 2011

Office rents may drop by 15 per cent

Straits Times: Thu, Oct 27
OFFICE rents could fall by up to 15 per cent over the next year if the global economic uncertainty persists, according to a new report.


Knight Frank analysts said the dramatic correction is possible if the debt crisis slows Singapore's economic growth.


The economic gloom coupled with the influx of more than 10 million sq ft of new office space over the next four years could create a dangerous situation in the market, said Mr Png Poh Soon, Knight Frank's head of consultancy and research.


'Historically when a crisis of a certain magnitude happens, we do expect to see a fall of this scale,' said Mr Png.


'But based on past trends in the office rental market, while the rents may fall quickly, the recovery is equally quick as well.'


He added that the marginal growth in office rents in the third quarter could signal that the sector is reaching its peak.


Mr Calvin Yeo, executive director of office services at Colliers International, expects office rents to fall around 5 per cent to 10 per cent over the next year, should the global economy slow down.


'There is still a demand for high-quality office space, led by bigger users from the financial industry moving to the latest buildings.'


He pointed out that demand is expected to slow down in line with the economy, but the amount of supply has a part to play in this equation as well.


'A lot of new stock is expected to come on stream in the next few years and the economic uncertainty makes it difficult to say for sure if there will be enough demand to absorb both new and existing stock.'


But CBRE's head of research for Singapore and South-east Asia, Ms Petra Blazkova, pointed out that the continued demand for premium space meant there would more likely be a widening gap in premium and lower-grade office rents than a sharp correction.


She said premium office rents would remain at a stable level even though the challenging economic conditions might mean space could take longer to lease out.


But lower-grade rents may come under pressure, especially after many tenants leave for better-quality offices.


While she predicted overall office rents would stay flat for the next quarter, Ms Blazkova said that more clarity was needed to give an accurate forecast.


'It's not going to be a rosy few months (for the office sector)... We will still need a few more months to see if Greece is going to default... Many market players are taking a wait-and-see approach as to what effect and impact it will have on Asian economies like Singapore.'


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